HSBC raises St.James's target price, reiterates 'buy'

Analysts at HSBC raised their target price on shares of St James's Place, pointing to the improving productivity of the asset manager's advisors, scope for greater capital returns and better growth prospects versus rivals.

Regarding the first of those points, the broker's analysts pointed out how St.James's advisor productivity had accelerated between 2015 and 2017 to reach a compound annual growth rate of 16%, up from 4% per year between 2010 and 2015.

That, HSBC said, showed the company's acquired advisor businesses were maturing, meaning the unit could sustain growth in net inflows and assets under management without having to accelerate the recruitement of outside advisors.

St.James's Place also stood to gain from the review of its self-imposed management solvency buffer.

HSBC reckoned that could be reduced by £80m in 2017 which wold potentially be paid out as a one-time special dividend - for an additional 1.3% of yield.

In terms of valuation, St.James's shares offered growth in underlying cash of 21% per year, of 20% in its dividend yield and of 10% in embedded value.

Despite being similarly priced on metrics such as price-to-earnings per share, the sector only offered 10% growth a year in EPS and of 8% in DPS between 2016 and 2019.

Hence, the broker lifted its target on St.James's shares from 1,280p to 1,350p while reiterating a recommendation to 'buy'.